Huge August vegetable price rise

PUBLISHED : Thursday, 06 October, 1994, 12:00am
UPDATED : Thursday, 06 October, 1994, 12:00am

I REFER to the article headlined, 'Vegetable tycoons land in sauce over inflation' which appeared in the Lai See column of the South China Morning Post, on September 23.

In the article, the author sarcastically criticised the Government, saying that it always attributed changes in the inflation rate to changes in vegetable prices.

Even though articles in Lai See are usually for light reading, we consider it necessary to make a response on this occasion, since we in this department have noticed that the scepticism regarding 'vegetables' is not held by the author of the Lai See column alone.

The author, just as some other commentators, had some major misconceptions in his criticisms about the Consumer Price Index (CPI).

In particular, he confused the reasons that account for the level of the inflation rate with the reasons that account for changes in the level of the inflation rate.

Since the misconceptions could unfairly undermine the credibility of the CPI as an important measure of consumer price inflation, I would therefore like to clarify some relevant points below.

The major commodity/service components that contribute to the current levels of inflation (the 8.5 per cent in July and 9.8 per cent in August 1994) are housing, meals bought away from home, other food items and miscellaneous services.

In fact, these major components have contributed mainly to the inflation rate (as measured by the year-on-year rate of increase in the CPI (A)) most of the time because of their relatively high price increases and large expenditure weights (that is, the relative expenditures amongst the various items of goods and services) in the CPI(A).

While housing rental increases were the largest contributor to the inflation rate in both July and August, followed by meals bought away from home, miscellaneous services and so on, they did not account for the increase in the inflation rate from 8.5 per cent in July to 9.8 per cent in August since the year-on-year rates of increase in these items taken together were similar in both months.

I refer to the following figures: Component groups of commodities/services. Year-on-year rate of increase - vegetables - July '94, plus 10.9 per cent, August '94, plus 62.4 per cent; clothing and footwear - July '94, plus eight per cent, August '94, plus 10.8 per cent; other commodities and services (including housing rentals, meals bought away from home, miscellaneous services, etc) - July '94, plus 8.5 per cent, August '94, plus 8.4 per cent; overall CPI (A) - July '94, plus 8.5 per cent, August '94, plus 9.8 per cent.

Instead, the 'vegetables' component was the single most significant contributor to the increase of the inflation rate.

Notwithstanding the fact that vegetables account for only 2.5 per cent of the total consumption expenditure of households, the effect of the increase in their prices was rather significant in August because the magnitude of increase was huge.

The prices of vegetables rose sharply by 62 per cent in August '94 over August '93 (as against the increase of 11 per cent in July '94 over July '93).

If not for this huge increase in the prices of vegetables, the inflation rate would have been practically the same as in July.

Although the 'clothing and footwear' component also contributed to the increase in the inflation rate in August, the extent was in fact relatively minimal.

We sincerely hope that the above clarifications will help remove the misconceptions about the CPI.

DOMINIC K. T. LEUNG for Commissioner for Census and Statistics